Iowa Businesses Spend Billions In Tax Coupling

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DES MOINES, Iowa (KCRG-TV9) -- Federal farm tax legislation isn't very permanent. Provisions expire and it's renewed or created on a year-by-year retroactive basis and often at the end of the year.

In Iowa, it's up to the legislature to couple that down to Iowa law. Traditionally, that's what's expected and what has happened, but not this year.

In January, Governor Terry Branstad announced that he didn't think he had funds in the budget for Section 179, which allows small businesses to include up to $500,000 in immediate depreciation and has been in place in Iowa for the last five years.

Instead Iowa taxpayers would be limited to a $25,000 deduction for 2016 and retroactively for 2015.

Specifically, agriculture businesses and farms use it for high cost equipment. In 2012 through 2014, agriculture applied that tax law to around 38 percent of their investments. More than twice of any other industry.

In terms of dollars, across all small businesses in Iowa, that's about $2.7 billion in 2012, $2.7 billion in 2013, and $2.2 billion in 2014. Of that, farm returns claimed between 54 and 66 percent over those three years.

Those numbers come from a white paper by Roger McEowen, a professor of Ag Law at Washburn University and the Midwest Tax Director of CliftonLarsonAllen in West Des Moines.

He says section 179 money doesn't just go away.

"So the state gets its money, about 40 percent of those funds will come back in the first year the very next year," McEowen said. "But it all comes back over the life of that asset. So, it's not a budget issue, it's a timing issue. My point is we should always couple first. There are administrative problems that practitioners have with not coupling."

McEowen's paper made it to the governors desk, and he ended up meeting with Branstad about coupling.

Two weeks after that, the coupling bill HF 2433 passed the Iowa House 79-18 and then passed unopposed in the Senate. The governor is expected to sign it after he returns from a family vacation this week.

McEowen hopes his paper helped get the bill passed.

"Well, we hope it had an impact, I don't think it hurt anything, but there were a lot of businesses, a lot of small businesses, and a lot of people interested in the entire coupling debate it was just one piece of the puzzle," he said.

The Iowa Department of Revenue did extend the farm filing deadline to April. Saving the state $200,000 in processing fees and saving farmers $1.8 to $2 million dollars in preparatory fees for hand amended returns.

McEowen's paper on section 179's impact on Iowa taxpayers will be online on the Washburn law school website in a couple weeks.

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